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How to Value: Gas Stations

Industry Description

Gas Stations are an industry in the U.S. which consist of establishments engaged in retailing automotive fuels (e.g. diesel fuel, gasohol and gasoline). Many operate in combination with convenience stores or food mart products. These establishments may also provide automotive repair, towing, or car wash services (NAICS 447110) or in combination with activities such as providing repair services; selling automotive oils, replacement parts, and accessories (NAICS 447190). Major oil producers that franchise most of their gas stations are not included in the scope, unless they own a considerable number of locations.

The following are some basic characteristics of the industry:

Industry Trends

The gas stations industry is highly fragmented with high competition. The key external forces that influence the gas stations industry are (i) high volatility of world price of crude oil, (ii) consumers disposable income and driving habits, and (iii) growing popularity and availability of fuel-efficient cars.  Each of these is described in further detail below.

Industry revenue is heavily dependent on trends in gasoline sales and prices, considering fuel is the industry’s primary input and accounts for 75% to 90% of revenue. Due to the high-level of competition within the industry, there is a lag between changes in crude oil change and when gas prices change.  They affect the profitability of gas stations.  When crude oil price increases, operators absorb more of these costs than they can pass onto consumers. Therefore, gas station revenues may rise during periods of crude oil price growth, but profits drop. The reverse is true: as oil prices drop, gas station revenues decrease but profits increase. The world price of crude oil is expected to rise in 2022, due to the volatility created by economic slowdown during COVID pandemic, oil price war between Saudi Arabia and Russia, and the Ukrainian conflict.

As people return to work after stay-at-home mandates are lifted following the COVID pandemic, the number of miles driven will increase. This increase leads to higher retail sales of transport fuels contributing directly to industry revenue. However, the economic uncertainty created by the risk of stagflation in 2022 creates variability in consumers disposable income. This likely will result in a decrease in demand for fuel.

The growing popularity of fuel-efficient hybrid and electric vehicles will further restrain revenue growth. In addition, with the Infrastructure Bill of 2021, the increased availability of electric vehicle charging stations across the country will make electric vehicle cars more accessible. As a result, there will be a decrease in demand for gasoline.

Gas sales consists of most of a gas station’s revenue compared to revenues from convenience stores and other services.  However, margins on convenience store and other service revenues are higher than the margin on gas.  As a result, the industry has been trending increasingly towards larger stores so as to include more additional services.

Key Performance Metrics

In evaluating gas stations, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:

Industry Organizations & Publications

The following organizations publish useful information:

Guideline Information: Private Purchase Transactions

Many gas stations are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held gas stations is generally the best source of information to appraise a subject company. However, because there are so many, the multiples are generally too variable to be meaningfully applied without further analysis.

The following are typical appraisal multiples from sale of gas stations:

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.  Further, sales of just the business and property will be appraised different than sales of a business with leased space.

Guideline Information: Publicly Traded Companies

Most gas stations are privately owned.  Most of the publicly-traded companies that come to mind in connection with gas stores, like Exxon Mobil (XOM), Chevron (CVX) and Shell (SHEL) are the refineries that sell to gas stations.  Gas stations typically have exclusive agreements with these refineries, but the gas stations themselves are rarely owned by these publicly-traded companies.   

There are a few that are publicly traded companies whose operations include gas stations, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, doing so would require additional research outside the scope herein.  Also, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.

The largest publicly traded companies that include gas stations, ranked by market capitalization are:

The Price-to-Earnings ratios of these companies range between 15.5 times to 21.3 times.

Appraisal Rules of Thumb

Please note: you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Gas Stations are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.

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